On June 5^th, 2020, the President signed the Paycheck Protection Program Flexibility Act of 2020 providing more flexibility for borrowers seeking forgiveness of the PPP Loan provided by the CARES Act. Regulations and rules governing the PPP loans have been changing since the day it was announced and will most likely continue to evolve as the SBA and Treasury will continue to provide more guidance. As for now, H.R 7010 gives borrowers some relief and should allow them to obtain loan forgiveness a little more easily. Below is a list of major changes that everyone should be aware of.

• Extension of the covered period from 8 weeks to 24 weeks
  • Borrowers now have 24 weeks to spend loan proceeds on the allowed expenses to be eligible for forgiveness
  • The June 30 deadline to restore levels of full-time equivalent employees and salary/hourly wages to the February 15^th levels has been extended to December 31, 2020
  • Borrowers do have the option to elect to use the 8-week period to ask for forgiveness if they have already spent their loan proceeds
  • Some questions arise though with the extended period
    • Will borrowers have to wait until the end of the 24-week period to ask for forgiveness or can they apply if loan proceeds are spent before that time?
    • Will the limit of cash compensation per employee increase in proportion to the increase in the covered period, from $15,385 to $46,153? SBA guidance stated that the maximum amount of forgivable compensation paid to an as-yet-undefined “owner-employee” is capped at 8/52 of the 2019 compensation amount. Is that formula now increased to 24/52? Presumably so but, the SBA will need to issue more guidance
• The requirement to spend at least 75% on payroll has decreased to 60%
  • The language in the new bill appears to create a cliff. If a borrower does not use at least 60% of the proceeds on payroll, none of the loan will be forgiven. On June 8^th, a joint statement from the Treasury Department and SBA indicated that partial loan forgiveness will be available if the 60% threshold is not met. 
  • This increases the percentage of loan proceeds allowed for mortgage interest, rent and utilities to 40%
  • With the extension of time and decrease in payroll spending requirements, borrowers should be able to have their loans fully forgiven
• New relief provided for businesses that remain partially or fully closed
  • The amount of loan forgiveness will not be reduced if the loss of FTEs is due to shutdowns related to compliance with HHS and OSHA standards for sanitation, social distancing, or other safety requirements related to COVID-19.
    • Employers will need to represent, in good faith, and document reasons why a return to normal business levels was unattainable.
• Extension period to repay loans
  • H.R. 7010 extends the term loans to five years from two for loans obtained after the enactment of this bill.
  •  Borrowers that received loans prior to this bill will have the ability to negotiate the extended period with their lender
• Payroll tax deferral now allowed for PPP loan recipients

As stated, this new bill provides more relief for borrowers but there are more uncertainties that will need to be addressed. For schedule C filers and self-employed individuals, the forgiveness was defined as 8/ 52 of line 31 on the Federal Schedule C. Will this now change to 24/52? As of the date of this article, the expenses used for loan forgives are still nondeductible per the IRS. An issue can arise if a borrower’s 2020 tax return is filed before the loan is forgiven. There is a bill that the Senate is currently reviewing that updates the legislation allowing those expenses to be deductible but the legislation has a long way to go before coming into law.

Borrowers that have their 8-week period ending in upcoming days need to reevaluate their loan forgives options and speak with their representatives before taking any action. As seen in the past, these new laws will be subject to change based on guidance issued by the SBA and Treasury department. H.R. 7010 has provided much-needed relief to small business in these troubled times and Strothman and Company is here to help as always. For more information, please reach out to your Strothman and Company representative or our PPP loan task force.